Sterne Agee: Facebook Still a “Buy,” Though Target Not as High

While Facebook takes its public flogging from Wall Street on monetization concerns, at least a few institutions are still bullish on the social giant’s prospects.

“While the near-term outlook on FB remains cloudy given the ongoing transition to mobile, we continue to believe the long-term opportunity is large,” Stern Agee analyst Arvind Bhatia wrote in a Friday morning research note.

The reason for the positive outlook? A few things. Stern Agee conducted a sample survey of 750 users, and found that around 63 percent of the respondents access the site once daily, with 43 percent hopping on multiple times a day. “Engagement remains healthy, particularly among the 18-29 year olds, and user experience remains relatively unchanged versus six months ago,” Bhatia wrote.

That’s kind of an old-hat bet; engagement is something Facebook has trumpeted for a while now. Now it’s about how to wield that massive, one-billion-strong user base. What new products are to come that can turn those eyeballs into dollars?

Well, there’s Gifts, the service Facebook launched last month that allows users to buy stuff for each other. Bhatia claims nearly half the folks surveyed were willing to buy gifts for their friends through Facebook — that’s not too shabby, considering Gifts is in a test period, and only available in the U.S.

Also potentially lucrative: Nearly half of those surveyed were willing to use a Facebook search engine were it to come about, a topic that Mark Zuckerberg touched upon at the TechCrunch Disrupt conference last month.

My hunch, however, is that Facebook’s supposed search function won’t be the traditional Google-esque experience we’re used to. I’d imagine it’s more about searching within Facebook, finding relevant items inside your social network, rather than from the Web at large. But even that brings the potential for more ads served, with more page results returned. In other words, perhaps more revenue on the horizon.

Bhatia’s report wasn’t all wine and roses. He doesn’t anticipate promoted posts — Facebook’s way to let users pay their way to the top of their friends’ feeds — to be a big moneymaker. Only 16 percent of those surveyed were interested in using the product.

That could be part of why Bhatia’s price target was lowered to $37, down from the $47 target set just days before the stock debuted on the Nasdaq. Or it could just be that the fervor for FB shares has died down since the IPO, and the stock is tanking as a result.

Shares of Facebook were trading at $19.54 on Friday afternoon, down about 1 percent from opening price.

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